“Why the Reserve Bank of India Isn’t Targeting a Specific Exchange Rate Amid the Rupee’s Decline” | PYMNTS.com

Since mid-December, the rupee has dropped by 3%. In response, the new head of India’s central bank shared on February 7 that the bank is focused on maintaining stability in the market without disrupting its efficiency.

Reserve Bank of India Governor Sanjay Malhotra stated, “We aim to manage excessive volatility rather than fixate on a specific exchange rate.” His comments come amid market speculation that the RBI is taking a different approach to currency management than his predecessor.

Malhotra emphasized that the RBI is using all available tools and is more concerned with long-term trends than daily fluctuations. Following a reduction in the key interest rate, the rupee managed to recover some losses against the dollar.

The recent drop in the rupee’s value has been linked to its overvaluation compared to other currencies, especially in the context of a global trade war.

In December, the RBI announced that it is establishing mobile payment connections with various countries. It has solid arrangements with Sri Lanka and is collaborating with the UAE, along with some agreements involving Nepal and Bhutan.

Additionally, the RBI is partnering with other regional central banks to create a cross-border platform for instant payments. They are also exploring a central bank digital currency (CBDC).

Last August, the RBI revealed plans for a new technology platform called the “Unified Lending Interface.” This platform aims to simplify credit access for small and medium-sized businesses by streamlining the flow of digital information from various data providers to lenders. It will reduce the time for loan approvals and minimize the need for extensive documentation.